Stock Options Wrap-Up: End-Of-Day Sell Off

Trade was slow and into the end of day the market held on to the corrective nature, finishing lower. Once 816 on the S&P (^GSPC) was broken, short-term support was challenged and now violated with a close at 806. This looks to shape up as a good level for a fight between buyers and sellers. The losers today (Tuesday) were Financials (XLF) and Energy (XLE) but there was little momentum in terms of volume and price to say that there was conviction.

This could lead to these current consolidated trading ranges that we saw today. Watch 800 and then 795 on the S&P to see if we will start to challenge last week’s lows. This is a short view but this is the type of market that we are trading and I think that it is meaningful to talk and think about the market from this perspective at this juncture.

Economic numbers to watch tomorrow (Wednesday) are 8:30 Durable Goods Orders for Feb, 8:30 ET Durables, Ex-Transportation for Feb, 10:00 ET New Home Sales for Feb, 10:30 ET Crude Inventories for 03/20.

After Hours Update

Stocks finished mostly lower Tuesday, as a slow news day kept the major averages trading in a range throughout most of the trading session. Stocks opened modestly lower on profit-taking after a 498-point rally in the Dow Jones Industrial Average the day before. With no economic data and a light earnings calendar, the market seemed to lack any real meaningful news items to guide the action one way or the other. Trading was mostly sideways until some selling seemed to gather some momentum during the final hour.

In the end, the Dow Jones Industrial Average (^DJI) was down 115 points. The CBOE Volatility Index (^VIX) slipped .30 to 42.93. Options volume slowed a bit from the brisk pace seen during the past few days. Approximately 7.9 million calls and 6 million puts traded. Bullish Las Vegas Sands (LVS) saw a second day of bullish order flow. 45,000 calls and 1,400 puts traded Monday. Tuesday, shares jumped 39 cents to $3.04 and the action in the options market continued. Another 72,000 calls and 4,575 puts traded. April 5 calls saw heavy volume. More than 43,700 contracts traded. While some investors bought premium on hopes for higher prices, it seems that sellers dominated the flow. Some traders might have been closing bullish positions opened Monday, as the stock moved higher Tuesday. Bullish trading was also seen in Dryships (DRYS), Allergan (AGN), and Seagate Technology (STX).

Bearish

Best Buy (BBY) puts were heavily traded ahead of an earnings report due out Thursday before the opening bell. Shares lost 86 cents to $33.24 and total options volume rose to 2X the average daily levels. 51,000 put options traded on the electronics retailer, compared to 18,000 call options. Bearish trading also surfaced in Crucell (CRXL), McAfee (MFE), and Bed, Bath and Beyond (BBBY).

Index Trading

The PHLX Bank Sector Index (^BKX) lost 2.24, or 7.25 percent, Tuesday after rallying 16.2 percent the day before. In the options market, BKX April 25/20 put spread was active early in the day after a strategist apparently bought the spread 10000 times for $1.10. The trade is possibly a roll from the lower to the higher strike, as substantial open interest already exists in the April 20 puts. Either way, the activity seems to reflect a cautious or defensive view on the bank index through the April options expiration (24 days). Outside of that, the S&P 500, the mini-Nasdaq 100 Index (^MNX), and the Russell 2000 (^RUT) had among the more actively traded contracts. Approximately 495,000 puts and 508,000 calls traded across all index products.

ETF Trading

The Select Sector Energy Fund (XLE) finished down 88 cents to $45.66 ahead of weekly oil inventory data due out Wednesday at 9:30 central time. In the options market, one strategist appears to be looking for further weakness over the short-term and is playing it with a substantial put butterfly spread in the March quarterly’s, which expire in five trading days. To be specific, it appears that the strategist sold 20000 XLE March 42 puts to create the body of the fly, while buying 10000 March 40s and 10000 March 44 puts to form the wings. The trade has a bearish risk graph with a max profit if XLE falls to $42 per share by the end of the quarter. Beyond that, the Select Sector Financials (XLF), the SPDR Trust (SPY), and the iShares Emerging Markets Fund (EEM) had among the most actively-traded securities. Approximately 2.1 million puts and 2.1 million calls traded across all exchange traded funds.

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